Pay Me Less, More Often

With my not so recent job change came a change in how I was paid. At my last job we got paid at the end of the month, all at once. It was nice and made my accounting easy. Same amount of money every month on the last day of the month. When I tell people in "the industry" about this they actually chuckle a little. I'm told monthly pay checks are a sign of an unsecure company as they could potentially get a month of work out of you, close up shop, and not have to pay out; also I imagine it's a little more trouble for a small company to do irregular pay periods. I like to turn this around and say that companies that pay bi-weekly are basically saying they only have enough certainty that they'll be open for two weeks, but I digress.

I got used to the odd pay periods pretty quickly, I still get the same amount each month by the end of the month, it just comes in in smaller amount and more often, but the same amount. However I then started to notice some benefits from this.

I usually do all my money changing at the end of the month, pay bills, transfer to savings, done. But now that I get a pay check in the first half of the month I realized I could transfer money to savings earlier and earn a bit more savings on it. If I know I can put a minimum of $500 in savings at the end of the month then, on average, I can put that money in savings 3 weeks earlier. It's not a huge extra amount of interest, but it's an extra 5.7% of your interest rate. At the end of the month I just then put in whatever extra money is left over into savings as I would normally do.

The other thing is that if you look at paydays on the calendar you'll notice there's two months with three of them! That's right, twice a year you "make" 150% your normal pay! These occur during May and October. What this means is that you make "less" most months than you would if you just divided your salary by 12. This is effectively making you save 8% a month. This has two very nice side effects.

1. This 8% less you make means you must tighten your belt in general and therefor spend a little more wiser than you might. Most people may realize they should do this anyway, but this is actually making it a reality.

2. You have effectively been forced to save a months worth of money. This mimics setting aside money each month for a particular purpose, say a vacation, or a new HD TV without the headache of actually doing it and having to account for it in your monthly budget, which is a big barrier to entry.

So go out and find a job that pays bi-weekly and enjoy the benefits.